{"id":7221,"date":"2021-07-16T00:00:00","date_gmt":"2021-07-16T00:00:00","guid":{"rendered":"https:\/\/bxglobal.wpengine.com\/ca\/construction-soft-costs\/"},"modified":"2026-01-20T10:32:35","modified_gmt":"2026-01-20T15:32:35","slug":"construction-soft-costs","status":"publish","type":"post","link":"https:\/\/www.buildxact.com\/ca\/blog\/construction-soft-costs\/","title":{"rendered":"What are soft costs in construction?"},"content":{"rendered":"

3 minute read<\/em><\/p>\n

When\u00a0estimating the costs of a construction project<\/a>,\u00a0builders and remodelers\u00a0need to include\u00a0all of\u00a0the construction costs of the project\u00a0which\u00a0are traditionally separated into two types: hard costs and soft costs.<\/p>\n

Estimating construction project costs starts with a careful review of the project documents to determine the amount of work in a project.\u00a0It’s important to stay within your construction budget.\u00a0Knowing what are considered soft costs and hard costs will help. The difference between hard vs soft costs is simple and we’ll go into detail here.<\/p>\n

Many residential builders and remodelers\u00a0use estimating and material takeoff software to quantify the work and price direct construction costs. Many times, construction professionals will forget to include things like bank transaction fees, inspection fees, engineering fees, site work expenses, professional liability insurance, among other things. It’s also important to consider what local and state agencies require to remain in compliance.<\/p>\n

Here we will explore the difference between these\u00a0two\u00a0types of costs, give some examples of soft costs, and explain why soft costs need to be included in budgets.\u00a0One thing all construction professionals should be aware of is which tax credits they are eligible for<\/p>\n

Construction hard costs<\/strong><\/h2>\n

It\u2019s\u00a0actually easier to define soft costs in construction by looking at their opposite: hard costs.\u00a0This will give you a better idea of what are considered soft construction costs.<\/p>\n

Hard construction costs, or a hard cost (sometimes also referred to as brick and mortar costs), refers to anything considered direct construction costs. Any expenses\u00a0from\u00a0the construction of a building or project\u00a0that\u00a0are\u00a0caused by\u00a0the process of construction. They include the materials, equipment, labor, and other expenses needed for the construction of a project. Lumber, steel, plumbing, electrical, and masonry costs are all examples of hard costs.<\/p>\n

A hard cost generally occurs only during construction. There may be some early expenses to purchase materials or mobilize contractors, but the majority are incurred while the work is ongoing.\u00a0It’s important for construction projects to run on schedule so labor costs remain at the estimated amount.<\/p>\n

Construction soft costs<\/strong><\/h2>\n

Soft\u00a0costs are all of the other expenses involved in a\u00a0construction\u00a0project that do not deal with the physical construction or process of construction. Most of these costs are for non-tangible items, such as services, fees, and insurance.<\/p>\n

Construction soft costs include engineering, permits paid, marketing, and\u00a0project management expenses<\/a>. Soft costs are incurred from the preplanning stage of a project to post-occupancy and beyond.<\/p>\n

Examples of soft costs<\/strong><\/h2>\n

Depending\u00a0on the type of project and scope of work, the\u00a0types of\u00a0soft costs for a specific project may differ. For example, a small remodel that includes\u00a0only\u00a0painting and flooring will probably not require design fees or permits. While a new building with tenant spaces to lease will have soft costs including\u00a0marketing, insurance, permits\u00a0and\u00a0other\u00a0development\u00a0costs.<\/p>\n

Here are some examples of soft costs\u00a0typically\u00a0found on construction projects:<\/p>\n

Design:\u00a0<\/strong><\/h3>\n

Architecture,\u00a0design fees, and\u00a0engineering costs are included in soft costs. These fees pay for design services and may include designers, engineers, interior decorators, and other design consultants.<\/p>\n

Permits and surveys:\u00a0<\/strong><\/h3>\n

More\u00a0extensive remodels and renovations will require building permits and plan reviews by the local jurisdiction.\u00a0The project\u00a0may also require a survey of the property to determine elevations and property lines, which is considered a soft cost.<\/p>\n

Rentals:<\/strong><\/h3>\n

\u00a0<\/strong>Rentals\u00a0on a job site can include both equipment and office space.\u00a0You might\u00a0use mobile trailers or Conex boxes for material storage and workspace. Equipment may include forklifts, man lifts, scissor lifts, and other equipment.<\/p>\n

Financial and insurance:\u00a0<\/strong><\/h3>\n

All\u00a0projects require insurance to protect the\u00a0builders, contractors, and workers. This insurance\u00a0usually\u00a0includes\u00a0property insurance, general liability insurance,\u00a0workers compensation,\u00a0and builders risk coverage to protect the project during construction. There may be other financial\u2013related expenses such as bonds and accounting services that are expensed to\u00a0the\u00a0project.<\/p>\n

Project management:<\/strong><\/h3>\n

\u00a0<\/strong>Overall\u00a0project management costs, which might include computer data equipment,\u00a0are\u00a0soft costs. This may include expenses for\u00a0a\u00a0project manager or an independent owner representative.\u00a0Project management services provided by the general contractor<\/a>\u00a0can also be included\u00a0here or\u00a0may be considered part of hard costs.<\/p>\n

Marketing:\u00a0<\/strong><\/h3>\n

Any expenses by the owner to advertise the new building or recruit employees or tenants is included as a soft cost in the budget. This could include advertising, signage, flyers, banners, etc.\u00a0Read more:\u00a010 ways to market your residential construction business<\/a><\/p>\n

Post-construction:\u00a0<\/strong><\/h3>\n

Post-construction expenses, such as those involved with moving in, building lifecycle maintenance, change of tenants, and other post-occupancy expenses,\u00a0may be included in the budget. Some budgets may\u00a0project\u00a0these expenses over time to determine when\u00a0you get your\u00a0return on investment.<\/p>\n

Security and safety staff:<\/strong><\/h3>\n

You should prioritize the safety of your employees and construction materials and equipment by hiring a team to keep everyone and everything protected. This temporary staffing might account for a significant portion of your budget, but it is a wise investment. Safety consultants can also help ensure it is a safe working environment and provide best practices to avoid injuries directly related to the job. Not doing so, could lead to an unnecessary legal process that cuts into your bottom line. The construction industry can be a dangerous one, so sometimes it’s better to incur additional soft costs to help prevent bigger ones due the nature of the work. Always take time to asses other soft costs that might be beneficial preventative measures. These are common soft costs, but there are others that you should always consider.<\/p>\n

Construction loan commitment fees:<\/strong><\/h3>\n

Don’t overlook loan-generated interest, bank transaction fees, and accounting expenses. Almost every financial transaction includes some type of fee.<\/p>\n

Legal Fees:<\/strong><\/h3>\n

If for any reason you have to incur legal fees, this would be considered a soft cost. It never hurts to prepare for the worst, so having some money allocated for it is a good idea.<\/p>\n